Trusts

Question 0

What is a Constructive Trust?

Answer 0

An equitable remedy to prevent fraud or unjust enrichment. A wrongdoer will be deemed a trustee and must transfer the trust property to the intended beneficiary. A constructive trust will specifically be created if 1) a trustee of a private or charitable trust engages in self-dealing; 2) there is fraud or undue influence regarding a will; 3) there is an oral real estate trust (?) or 4) there is a secret trust.

Question 1

What Are the Requirements of a Trust

Answer 1

1) Settlor; 2) Trust Property; 3) Directions for Distribution; and 4) a Beneficiary

Question 2

What is an Oral Real Estate Trust?

Answer 2

The settlor transfers title to property to A on an oral condition that it be used for the benefit of B. Normally, A could invoke the SOF, but cannot and a constructive trust is imposed if 1) settlor and A are in a fiduciary relationship; 2) A committed fraud in the inducement; 3) there is detrimental reliance by B.

Question 3

What is a Secret Trust?

Answer 3

A will makes a gift to A, but on the condition of an oral promise by A to use property for the benefit of B. Parol evidence is admissible to show that B is the intended beneficiary.

Question 4

What Are a Trustee Powers?

Answer 4

Has powers listed in the trust document, those provided state law or court decree, and an implied power to do what is necessary and appropriate to carry out the trust’s purpose.

Question 5

What Are a Trustee’s Duties?

Answer 5

Loyalty; Care; Invest (as reasonable person investing own property; as prudent investor; or according to list of proper investments provided by the State); Accounting; Segregate; Earmark; Non-delegation.

Question 6

What Is a Trustee’s Liability?

Answer 6

A trustee may be named in her personal capacity and will receive indemnification if not at fault under common law. Under the modern approach, the trustee must be named as a representative of the trust unless the Plaintiff has reason to seek liability based on fault.

Question 7

What is Required for a Settlor to Modify Its Trust?

Answer 7

The settlor can modify the trust if the settlor expressly reserves the power to do so.

Question 8

What Are the Circumstances in which a Court May Modify a Will?

Answer 8

A court may modify a trust under 1) Cy Pres; 2) Deviation Power (for the purpose of changing administrative or management provisions in r event of both unforeseen circumstances by the settlor and deviation is necessary to preserve the trust. The court cannot change beneficiaries.

Question 9

How May a Revocable Trust Be Terminated?

Answer 9

The majority view is that to retain the power to terminate, the settlor must expressly reserve that power in the trust document.

The minority view is that the settlor has the power to terminate unless the trust is expressly made irrevocable.

Question 10

How May an Irrevocable Trust Be Terminated?

Answer 10

1) Settlor and beneficiaries all agree and all contingent remainders are accounted for;
2) All beneficiaries agree and the material purpose of the trust is accomplished;
3) Operation of law: the trustee has only a passive duty and the property passes directly to the beneficiary. This transfer may not always apply to personal property;
4) Merger where the trustee becomes the sole beneficiary.

Question 11

What Are the Incomes and Expenses of Life Tenant?

Answer 11

Persons receiving current income from a trust will receive cash, dividends, interest income and net business income of the trust property.

That person will pay for interest on loans, taxes and minor repairs.

Question 12

What Are the Incomes and Expenses of Remainderman?

Answer 12

During the term of a trust that names a remainderman beneficiary, the trust property (and therefore the person who is ultimately entitled to trust property) will receive stock dividends and stock splits from the trust property, and net proceeds on sale of trust assets.

The corpus of the trust (or remaindeman beneficiary) is responsible for paying for principal part of loan indebtedness, major repairs and improvements.

Question 13

What is the Adjustment Power of a Trustee?

Answer 13

Trustee can disregard rules regarding allocation if a different allocation is necessary to administer the trust fairly. An improper adjustment may be a breach of loyalty.

Question 14

What is a Semi-secret Trust?

Answer 14

Occurs when a will makes a gift to a person to hold as a trustee but does not name the beneficiary.

Result is an invalid trust. If settlor is alive trust will fail and property will revert. If settlor is a decedent, the property will go to the residuary of the estate.

Question 15

What is a Purchase Money Resulting Trust?

Answer 15

A form of resulting trust:?A pays B to transfer A’s title to C, C is presumed to be a trustee for A unless C is closely related to A, in which case a gift will be presumed.

Question 16

What Is a Resulting Trust?

When Will a Resulting Trust Be Created?

Answer 16

Implied in fact trust based on the presumed intent of the parties. If decreed, the trustee will transfer the trust property to the settlor or to the estate. This will occur if:

A private express trust ends or fails;

There is excess property in a private express trust;

A charitable trust fails;

A purchase money resulting trust;

A semi-secret trust.

Question 17

What is a Discretionary Provision in a Trust?

Answer 17

A provision that gives the trustee sole power and absolute discretion to determine when and what, if ever and anything, to give to the beneficiary.

If a provision could be interpreted as either support or as discretionary, discuss both.

Question 18

What is a Support Provision in a Trust?

Answer 18

A provision that allows the trustee to pay the beneficiary only as necessary for her health, support, maintenance or education.

Question 19

What is a Spendthrift Provision?

Answer 19

Provision that prevents the beneficiary from transferring, and creditors from attaching, beneficiaries right to future payments.

Question 20

What is an Honorary Trust?

Answer 20

A trust with no ascertainable beneficiary and confers no substantial benefit to society. (A trust to care for settlor’s pet).

Trustee is not required to carry out the intent of the trust, and if he refuses to do so the trust fails.

The Rule Against Perpetuities is applicable to honorary trusts.

Question 21

What is a Totten Trust?

Answer 21

The beneficiary takes whatever is left in the settlor’s bank account at death. Not a true trust, because the depositor-trustee owns the account during her lifetime and has no fiduciary duties to the beneficiary. May be converted to a private express trust if the settlor manifests the requisite intent.

Question 22

What is a Charitable Trust?

Answer 22

Any trust that confers a substantial benefit on society. If the trust will also benefit a specific group of people, analyze the document as both a charitable and a private express trust, because courts are SPLIT in that situation.

The Rule Against Perpetuities is inapplicable to charitable trusts, but charitable trusts are susceptible to cy pres modification if the settlor expresses a general intent without an effective mechanism to carry it out.

Question 23

What is an Illegal Trust?

Answer 23

A trust with a purpose contrary to law or public policy. Courts will try to excise the offending portion. If it cannot, the court will invalidate the trust or permit the trustee to retain the property. If the trust is found to be illegal after its creation, the property is returned to the settlor or to the settlor’s estate.

Question 24

What Are the Requirements to Create a Trust?

Answer 24

Must 1) have a trustee; 2) have a beneficiary; 3) have trust property; 4) include instructions for distribution of the trust property; and 5) demonstrate the intent to create a trust.

Trusts including real estate must satisfy the SOF. Courts may appoint a trustee if no trustee is named.

Question 25

What is the Intent to Create a Trust?

Answer 25

A present manifestation of intent to create a trust, using mandatory as opposed to precatory words. Precatory words combined with parol evidence is sufficient to find requisite intent.

Question 26

What Are the Limitations on Trust Property?

Answer 26

Any property interest that can be transferred may become trust property except 1) future profits of a business; 2) a debt owed to the beneficiary; 3) expectations of a gift.

Question 27

What are the Characteristics of A Trust ?

Private Express Trust

Answer 27

A fiduciary relationship governing property whereby a trustee holds legal title for the benefit of a beneficiary, and which arises out of an intent to create the trust for a legal purpose.

Question 28

What Is the Clafin Doctrine?

Answer 28

A trust cannot be modified or terminated if it would be contrary to the intent of the expressed purpose of the settlor, even if all beneficiaries agree.

Question 29

What is the Doctrine of Changed Circumstances Of a Trust?

Answer 29

In California a court may modify or terminate a trust upon petition by trustee or beneficiary if administration of the trust under changed circumstances would produce a result contrary to the settlor’s intent.

Question 30

What are the Consequences of Voluntary Alienation of Trust Property?

Answer 30

General rule is that a beneficiary cannot transfer the right to receive future payments, although courts will sometimes recognize an assignment of benefits on the grounds that the beneficiary has simply ordered the trustee to pay an agent or representative.

If the future payments are subject to a discretionary provision, the trustee retains the discretion to pay.

Question 31

What Are the Consequences of Involuntary Alienation of Trust Property?

Answer 31

General rule is that creditors cannot attach right to future payments, but at common law, certain preferred creditors can do so (child support agencies; government; tort creditors; life caretaker).

Many jurisdictions also allow attachment by any creditor of surplus, or the amount above and beyond beneficiary’s reasonable living expense according to her “station in life.”

Question 32

What are the Consequences of Creating a Trust For Oneself?

Answer 32

Involuntary alienation by creditors is permitted; split of authority on voluntary alienation. Look to the circumstances of the trust.